COMMNR. OF CENTRAL EXCISE, CHANDIGARH Vs. M/S. STESALIT LTD.

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 4507 of 2004, Judgment Date: Feb 15, 2017

                                                              REPORTABLE
                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL No.4507 OF 2004


The Commissioner of Central
Excise, Chandigarh                                            ….Appellant(s)

                                   VERSUS

M/s Stesalit Limited                                          …Respondent(s)


                               J U D G M E N T

Abhay Manohar Sapre, J.
1)    This appeal  is  filed  against  the  judgment  and  final  order  No.
123/2004-B dated 05.11.2003 passed in Appeal No. E/1122  of  2003-B  by  the
Customs, Excise and Service Tax Appellate Tribunal, New  Delhi  whereby  the
Tribunal partly allowed the appeal and reduced the amount  of  penalty  from
Rs.2,06,000/- to Rs.50,000/-.

2)    We herein set out  the  facts,  in  brief,  to  appreciate  the  issue
involved in this appeal.
3)    The respondent-a Limited Company is  engaged  in  the  manufacture  of
parts  of  Railways  and  Tramways  stock  classifiable  under  Chapter   86
including smoothing Reactors falling under Chapter 85.04 of the Schedule  to
the Central Excise Tariff Act, 1985.  The  respondent  also  undertakes  the
activity of modification/up-gradation of  old  Smoothing  Reactors  received
from the Railways.
4)    During the course of modification, the weight of copper  coil  in  the
old smoothing reactors is  increased  by  adding  new  copper  coil  to  the
existing old copper coil.
5)    It  was,  however,  observed  by  the  authority  concerned  that  the
respondent manufactured copper coils from the copper strips  and  used  them
capatively in  the  up-gradation  of  smoothing  reactors.  The  respondent,
however, neither paid any duty on the copper coil used  by  them  capatively
in their modification activity undertaken at the  relevant  period  nor  did
they submit the requisite  declaration  under  Rule  173-C  of  the  Central
Excise Rules, 1944(hereinafter referred to as “the Rules”).
6)    Since no duty was paid by the respondent on  upgraded  reactors,  they
were not eligible for the benefit of exemption  provided  vide  Notification
No. 67/95-CE dated 16.03.1995.  They were, therefore, required to  pay  duty
on copper coils as an intermediate  product  which  was  meant  for  captive
consumption.
7)    This led to issuance of show cause  notice  dated  17.04.2001  to  the
respondent by the adjudicating authority proposing  therein  the  demand  of
unpaid duty payable by the respondent on the aforementioned goods  and  also
penalty. By order dated 25.02.2003,  the  adjudicating  authority  confirmed
the demand of duty for Rs.2,05,291/- along with interest under  Section  11-
AB of the Central Excise Act, 1944 (hereinafter referred to as  “the  Act”).
The authority also imposed a penalty of Rs.2,06,000/-  under  Section  11-AC
of the Act read with Rule 173-Q of the Rules.
8)    Felt aggrieved by the aforesaid order, the respondent(assessee)  filed
appeal before the Tribunal. The respondent, however, did not  challenge  the
demand of duty but confined their challenge only to  imposition  of  penalty
and, in particular, its quantum. According to the respondent, having  regard
to the totality of the  facts  and  circumstances  of  the  case,  at  best,
nominal amount of penalty could be levied on the respondent but not the  one
imposed.
9)    By impugned order dated 05.11.2003, the Tribunal  partly  allowed  the
respondent's appeal and reduced the amount of penalty from Rs.2,06,000/-  to
Rs.50,000/-. It is against this order, the Revenue has filed this appeal  by
way of special leave before this Court.
10)   Heard Mr. K. Radhakrishnan, learned senior counsel for the  appellant.
None appeared for the respondent.
11)    Mr.  Radhakrishnan,  learned  senior  counsel   appearing   for   the
appellant(Revenue) while assailing  the  legality  and  correctness  of  the
impugned order contended that keeping in view the  law  laid  down  by  this
Court in Union of India & Ors. Vs. Dharamendra Textile  Processors  &  Ors.,
(2008) 13 SCC 369,  which  unfortunately  was  not  taken  note  of  by  the
Tribunal though it has direct  bearing  over  the  issue  in  question,  the
impugned order  cannot be said to be legally sustainable and is,  therefore,
liable to be set aside and that of the adjudicating authority restored.
12)   It was his submission that the Tribunal had no jurisdiction to  reduce
the quantum of amount of the penalty imposed by the  adjudicating  authority
on the respondent under Section 11-AC of the Act read  with  Rule  173-Q  of
the Rules in  the  light  of  the  law  laid  down  in  Dharamendra  Textile
Processors’s case (supra) and, more  so,  when  in  principle,  neither  the
respondent questioned the grounds for its imposition and  nor  the  Tribunal
found any fault in the imposition. In other words, the submission  was  that
in the light of the law laid  down  in  the  case  of   Dharamendra  Textile
Processors (supra), there was  no  discretion  left  with  the  Tribunal  to
reduce the quantum of penalty amount once it held that a  case  for  penalty
is made out.
13)   Having heard the learned counsel for the appellant and on  perusal  of
the record of the case, we are inclined to  accept  the  submission  of  the
learned counsel for the appellant.
14)   As rightly argued by the learned counsel for the appellant, the  issue
urged herein was examined by three judge Bench of this  Court  in  Union  of
India & Ors. Vs. Dharamendra Textile Processors &  Ors.(supra).   It  was  a
reference made to examine the correctness of the two  earlier  decisions  of
this Court rendered in   Dilip N. Shroff vs. Joint  Commissioner  of  Income
Tax, Mumbai & Anr., (2007) 6 SCC 329 and Chairman, SEBI vs.  Shriram  Mutual
Fund & Anr., (2006) 5 SCC 361. Their Lordships examined the issue in  detail
and held that the law laid down in the case of Dilip N.  Shroff  (supra)  is
not correct whereas the law laid  down  in  the  case  of  SEBI  (supra)  is
correct.  The following observations of Their Lordships are  apposite  which
reads as under:

“15. The stand of learned counsel for the assessee is that  the  absence  of
specific reference  to  mens  rea  is  a  case  of  casus  omissus.  If  the
contention of learned counsel for the assessee is accepted that the  use  of
the  expression  “assessee  shall  be  liable”  proves  the   existence   of
discretion, it would lead to a very absurd  result.  In  fact  in  the  same
provision there is an expression used i.e. “liability to pay duty”.  It  can
by no stretch of imagination be said that  the  adjudicating  authority  has
even a discretion to levy duty less than what  is  legally  and  statutorily
leviable………….”
“19. In Union Budget of 1996-1997, Section 11-AC of the Act was  introduced.
It has made the position clear that there is no scope  for  any  discretion.
In Para 136 of the Union Budget reference has been  made  to  the  provision
stating that the levy of penalty is a mandatory penalty.  In  the  Notes  on
Clauses also the similar indication has been given.
20. Above being the position, the plea that Rules 96-ZQ  and  96-ZO  have  a
concept of discretion inbuilt cannot be sustained.  Dilip  Shroff  case  was
not correctly decided but SEBI case has analysed the legal position  in  the
correct perspectives. The reference is answered……………..”
     (emphasis supplied)

15)   Applying the aforementioned law to the facts of this case, we  are  of
the considered opinion that the Tribunal erred in  reducing  the  amount  of
penalty from Rs.2,06,000/- to Rs.50,000/-.  Indeed,  the  Tribunal,  in  our
opinion, failed to take into consideration the law laid down in the case  of
 Dharamendra Textile Processors (supra) which  the  Tribunal  was  bound  to
take while deciding the appeal  and  instead  the  Tribunal  wrongly  placed
reliance on its own decision in the case of Escorts JCB  Ltd.  vs  CCE  2000
(118)  ELT  650  (Tribunal).  We  also  find  that  the  Tribunal  gave   no
justifiable legal reasons for reducing the penalty amount.
16)   In the light of foregoing discussion, we are  unable  to  concur  with
the reasoning and the conclusion arrived at by the Tribunal.  They  are  not
legally sustainable and, therefore, deserve to be set aside.
17)   The appeal thus succeeds and is accordingly  allowed.  Impugned  order
is set aside and that of the order passed by the adjudicating  authority  is
restored. No costs.


                                      ……...................................J.
                                                            [J. CHELAMESWAR]


                                     ….……..................................J.
                                                        [ABHAY MANOHAR SAPRE]

      New Delhi;
February 15, 2017
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